From chicken farm to Hanover

I've never worked at a chicken farm, but I've visited them. And I would guess that when roosters crow at dawn, it can mean waking up very early in the morning to feed them.

In a Dec. 16 interview with Fred Eppinger, CEO of Hanover Insurance, I learned that chicken farming is not the only job that requires people to wake up early in the morning. After all, during the 2008 financial crisis, Mr. Eppinger told me that he would wake up at 2 a.m. to check the stock tickers in Japan because that was the best way to see whether Hanover would be facing more financial challenges once things opened for business at its Worcester headquarters.

If you're interested in how Mr. Eppinger made his way from his family's chicken farm in Spencer to the helm of Worcester's largest publicly traded company and what he thinks about the future of Worcester's economy, read on.

Mr. Eppinger grew up in Spencer and graduated from Holy Cross in 1981. (He turned down Brown University so he could work on the family farm while attending college).

From there, he left town to be an accountant with Coopers & Lybrand. Next stop was Dartmouth's Tuck School from which he earned an MBA in 1985 and was an Edward Tuck Scholar. From there, he joined consulting giant McKinsey & Co., where he spent 15 years rising to become senior partner and leader of its insurance practice.

He left McKinsey in 2000 to become senior vice president of strategic marketing for ChannelPoint, an insurance and financial service technology company. And in 2001, he joined The Hartford Financial Services Group as executive vice president of property and casualty field and service operations.

In 2002, Allmerica — now known as Hanover Insurance — nearly bit the dust. That was the year it lost $306 million and suffered an 87 percent plunge in its stock from $52 to $7. Ratings agencies downgraded its debt five notches below investment grade. It was circling the drain when directors, led by current Chairman Michael Angelini, hired Mr. Eppinger as CEO in 2003.

In the last decade, Hanover has rebounded. Its stock is up 97 percent and hovers near its all-time high of around $62 a share.

Mr. Eppinger's journey to insurance is an interesting one. As he explained, "When I started at McKinsey, I did work in paper and electric utilities. It was interesting but it didn't really grab me. I met with my mentor at McKinsey and asked him if he could help me find something interesting. He said, 'You should meet our insurance partner. He's first generation like you. You'll like this guy.'"

The McKinsey mentor was right. "I started doing consulting for Travelers Insurance Co. in 1985 and 1986. I really liked the insurance industry. It employs a lot of people and is important to the economy. It takes care of people when something horrible happens. I fell in love with the people challenges. It's not as if I knew I was going to be doing this when I was 18. I fell into it and I really like it," said Mr. Eppinger.

And when he took over Allmerica, there were plenty of challenges. As he said, "I did a turnaround. But I did not just want to stabilize the company. I also wanted to grow it. So we put together a 100-day plan. I got to know the people and assembled 23 teams on the biggest issues — both defense and offense. I had the senior guys sign the first plan. And I wanted to develop a vision — give people a reason to care about working there and be committed to its success."

In addition to solving Allmerica's people problems, Mr. Eppinger needed to alter its business mix. "For 160 years, the company had been in life and property/casualty insurance. They had tried to make life insurance into an investment business, and by the time I got there it was a disaster. The ability to do anything with it was gone. I decided that the one thing we could build on was the property/casualty business," he explained.

But the property/casualty business was too narrowly focused for Mr. Eppinger's thinking. He explained, "I needed to diversify it. At the time it was in the four worst states from a regulatory standpoint and was 70 percent personal lines (homeowners' and car insurance). We've now got a much better balance of personal, commercial and specialty lines and we are 20 percent international and 80 percent in states across the U.S. If there is a tornado in Springfield, it does not hurt us as much now."

In 2008, Mr. Eppinger's Hanover went from being seen as dull and boring to being a genius. "In the summer of 2008, I gave a speech at an insurance conference at Lehman Brothers. People asked me why our investment portfolio was so conservative. We had no junk bonds and only investment grade securities. I told them, 'We have plenty of operational risk and I can't take investment risk at the same time.' Three weeks later, Lehman Brothers was out of business. Later that fall, I was speaking at Keefe Bruyette investment conference in New York and suddenly I'm a genius. We were able to sell one of our businesses to Goldman Sachs, and in January 2009 we had $900 million in cash."

In the depth of the financial crisis, Mr. Eppinger's practice of getting up early to feed the chickens must have come in handy. As he said, "For eight months, I would get up at 2 in the morning to check on the Asian markets. Money market funds were going bad. We could lose $500,000 overnight in our investment portfolio."

Hanover Insurance survived and now employs just about as many people as it did when he took over. He loves being in Worcester and is bullish on its future. As he said, "Ten years ago, Hoboken, N.J., was not nearly as nice as it is now. People have taken advantage of its lower rents and proximity to Manhattan. Worcester can be like that to Boston. People who grow up here, stay here. They know the quality of the employee base and the lifestyle. With CitySquare and Gateway Park, Worcester is at the tipping point. It just needs 5,000 more jobs in downtown. We can get there in 24 months."